Inflation weary consumers expected to hamper grocery store revenues in 2024

Canadian food retailers will see slower revenue growth in 2024 as inflation weary consumers, slammed by high interest rates, are expected to continue bargain hunting for groceries, a report released Thursday revealed. In the “Global 2024 Food Retailer Outlook” report, credit rating agency DBRS Morningstar said it is estimating revenue growth to be in the low to mid single digits for Canadian grocers this year.

By contrast, aggregate sales for supermarkets and other grocery retailers in Canada grew by around six per cent in 2023, according to data by Statistics Canada tracked up to October. Despite consumers buying less, the increase can be explained by record high levels of food inflation recorded last year.

But by the Bank of Canada over the last two years, according to DBRS. “Things are certainly getting better on the inflation front,” said Moritz Steinbauer, vice president of credit ratings of diversified industries at DBRS and co author of the report. In January 2023, annual inflation for food purchased from stores in Canada was up by 10.4 per cent, according to Statistics Canada.

Growth has since slowed down to 4.7 per cent in November. However, the recovery will be slow, as some inflationary pressures will persist this year, Steinbauer said. Labour disputes and wage negotiations might translate into higher prices for the consumer, while consumer staples companies are passing on price increases to the grocers, he explained.

Last year was also marked by a significant change in shopping habits, which are expected to continue into 2024, as “customers try to find ways to stretch their wallets,” said Steinbauer. Price conscious consumers spent more time last year browsing stores for promotions and discounts, substituted branded products for private label, opted for cheaper items within the same product category, and, overall, shopped in smaller quantities.

As a result, we should expect most big grocers to focus their investments in private label products as well as offerings of rewards and loyalty programs as they continue to weather macroeconomic challenges in the new year. Canada’s food retailers “could be more meaningfully affected by the impacts of aggressive interest rate hikes on consumers' purchasing power, given relatively shorter mortgage terms” the report read.

Roughly , with some borrowers seeing payments rise by nearly half at renewal, according to a recent report by RBC. “That will obviously make a huge dent on your discretionary spending,” Steinbauer said..